I am an e-Money researcher and crypto economist focused on expanding the circulation of nonpolitical digital currencies. My career has included senior influential posts at Sumitomo Bank, VISA, VeriSign, and Hushmail. Currently, I serve on the Board of Directors for the Bitcoin Foundation.

Department Of Homeland Security To Scan Payment Cards At Borders And Airports

Travelers leaving or entering the United States have long had to declare aggregated cash and other monetary instruments exceeding $10,000. Now, under a proposed amendment to the Bank Secrecy Act, FinCEN (Financial Crimes Enforcement Network) will also require travelers to declare the value of prepaid cards that they are carrying, known now as “tangible prepaid access devices.”

Expected to be finalized by the end of this year, the cross-border reporting modifications stem from a broader October 2011 definition of payment methods and form factors that replaced the term “stored value” with the term “prepaid access” in an effort to more accurately describe the process of accessing funds held by a payment provider.

Enforceability falls to U.S. Immigration and Customs Enforcement and U.S. Customs and Border Protection both within the Department of Homeland Security, which is already developing advanced handheld card readers that can ascertain whether a traveler is carrying a credit card, debit card, or prepaid card. This differentiation is important because only prepaid card balances will need to be added to declaration report forms.

Acknowledging that many questions still remain and that enforcement may not be straightforward, Cynthia Merritt, assistant director of the Retail Payments Risk Forum at the Federal Reserve Bank of Atlanta, had this to say about the handheld readers:

Furthermore, according to the comments, the enforcement challenge is not new, nor is the concept of a device or document that can be used to access value. The current challenges are similar to those presented in the past with other monetary instruments such as checks, money orders, and traveler checks.

Merritt also stated that, “When law enforcement takes possession of a cash or monetary instrument at the border, they are effectively holding the funds, but not so with a prepaid card or other device. Holding the card does not provide access to the underlying funds.”

Other questions to be settled include how to determine mobile phone wallet and key fob balances that can function in a manner similar to card swiping, how to distinguish between reloadable and non-reloadable prepaid cards, how to distinguish between bank-issued and non-bank-issued prepaid cards, should closed loop gift cards be included in the cross-border reporting requirements, what to do about cards that clear customs with a minimal balance but are then subsequently reloaded with an amount in violation of the reportable limits, and what to do about a large number of nonpersonalized, unembossed cards.

Also, would a traveler have legal recourse for damages if agents seized a proper debit card in the mistaken belief that it was a reportable prepaid card?

These complications and others imply that FinCEN’s NPRM [Notice of Proposed Rule Making] may yet undergo some revisions in order to bring the regulations in sync with the realities of the prepaid card industry.

In the meantime, travelers with a memorized Bitcoin private key can breathe a sigh of relief, because according to an important April 9th, 2012 letter to FinCEN Director James Freis from Homeland Security Investigations it appears that intangible brainwallets are safe for the moment:

Should the border declaration apply to codes, passwords and other intangibles as well as to any tangible object that is dedicated to accessing prepaid funds?

HSI believes that border declaration should not apply to codes, passwords and other intangibles. Identification and verification of intangibles in the context of border enforcement poses logistical and potential legal issues that are not contemplated by currency and monetary instrument declaration regulations. The structure of the currency and monetary instruments declaration regime, hinges on the existence of a physical object. The language requires something that can be passed from one individual to another in order to be presented to a third party for execution/payment.

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Erik, not for much longer I think – ECB recently published a paper regarding regulation of Virtual Currencies such as Bitcoin, Linden Dollars, WoW Gold, Facebook Credits and such. http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf

I won’t be surprised to see Fed follow suit very soon. Imagine having to grant access to your Facebook profile at customs.

In crypto-anarchy, you dont declare what information you might be carrying encrypted on your devices. You take steps to make sure it looks like normal data files, perhaps your encrypted wallet is embedded in pictures of cute cats. The nation states must be starved and put down. They are out of control.

And I can imagine people who don’t have a Facebook account being held up at the border because they will be perceived as not telling the truth. As Jon points out, there are so many unanswered, and probably unanswerable, questions. The problem with a situation like that, is that enforcement (or harassment) becomes discretionary.

When will you all learn that you live in the largest minimum security prison in the world? That money doesn’t belong to you, you just have limited access to it. If you want to take it out of the country you have to use the same methods as drug & gun runners (not the government sanctioned ones); smuggle it out.

Most of you will just sit there with your boob tube and cheetos while your cage gets smaller and the prison bulls get meaner……

“Who’s in your wallet” comes to mind. LOL. We have the Fed sending trillions all over the planet with zero accountability, and they want to snoop on me? Wait til the economic/financial meltdown. We’ll see who is held to account.